Where Top Latin American Executives Are Looking for Growth

Top-rated chief executives from Mexico have one word to describe the opportunities of 2023 and beyond: nearshoring.

The phenomenon, which is the opposite of offshoring, describes the massive relocation of production by many U.S. companies to Mexico amid ongoing tensions between the U.S. and China. In March, Tesla announced plans to build a new factory in Mexico, joining BMW and Ford which already have operations south of the US border. But it’s not just cars: the first quarter of 2023, Mexico experienced a remarkable 48 percent year-on-year increase in foreign direct investment, according to Bloomberg. Mexican exports could potentially increase by a total market of $155 billion over a five-year period, according to Morgan Stanley, the equivalent of over 10 percent of Mexico’s GDP.

For some of the Mexican leaders among Institutional Investor’s Latin America Executive Team, nearshoring is an opportunity to capture spending on infrastructure and sustainability flooding out of the U.S. “Our industry transition to a green and circular economy will open up new avenues of growth as we innovate products and services essential for a rapidly growing and more sustainable world,” says Fernando A Gonzalez, who will soon reach a decade as chief executive of Cemex, a Mexican building materials company best-known for manufacturing and distributing cement. He was the top-scoring chief executive in the cement and construction industry as voted for by sell- and buy-side professionals surveyed by II. Participants in the survey noted the timeliness of Cemex’s financial disclosures alongside Gonzalez’s communication style when they recorded their vote. “I enjoy hearing from employees and seeing firsthand what we are doing locally,” says Gonzalez of his leadership style. “I prefer to lead through collaboration. I have a strong management team, and while ultimate decisions lie with me, I like to empower my senior managers to share their perspectives freely.”

Participants in the survey also honored Lorenzo Dominique Berho Carranza of Mexican real estate company Corp. Inmobiliaria Vesta for his communication abilities, alongside the company’s IR program, which ranked highly for responsiveness and attentiveness with investors and sell-side analysts. Carranza, the No. 3 CEO in the real estate sector, compared his leadership style to a peloton — a group of racing cyclists. “In a peloton, each member has a specific role and responsibilities that contribute to success,” he said. “Unique strengths and abilities contribute to collective performance. And we achieve our goals through hard work and a team mindset.” Corp. Inmobiliaria Vesta scored a major goal this summer when it debuted on the NYSE, a moment Carranza described as a “milestone.” Vesta’s team raised the most funds by a Mexican company in nearly 11 years, bringing the total raised from the debut to $446 million. But Carranza is not sitting back, instead pumping proceeds from the float straight into growing the company.

That growth, Carranza says, will come from opportunities connected to nearshoring as U.S. companies eye real estate to move operations closer to home. Carranza says Corp. Inmobiliaria Vesta is focused on growing its portfolio of industrial real estate in response to demand from international companies. He believes the focus on manufacturing of IT hardware, batteries, electric vehicles, and other parts could lead to a second wave of nearshoring over the course of the next five years, creating demand for industrial space in the country. Corp. Inmobiliaria Vesta is working with government bodies and corporate partners to address obstacles to growth in Mexico’s industrial real estate sector, including historic underinvestment in basic infrastructure like electricity. “We believe that nearshoring could have a transformative impact on Mexico's economy,” Carranza says.

We come from 2022, a year of many challenges for most businesses as inflation spiked to 40-year highs while central banks hiked interest rates at an unprecedented pace. We are pleased with how we responded to these challenges and expect to continue to see the benefits of our actions in 2023. Most importantly, even as we pivoted to address current conditions, we continue to focus on our strategic priorities of growing EBITDA through margin enhancement, achieving investment grade rating, optimizing our portfolio for growth and advancing our sustainability agenda to continue leading the industry in the transition to a low-carbon and circular economy. The medium-term outlook for our industry is promising, as the fiscal stimulus in the form of infrastructure and climate action spending cascades throughout the U.S. and European economies. The redefinition of supply chains and nearshoring also presents significant opportunities, particularly in Mexico and the U.S. Also, our industry transition to a green and circular economy will open up new avenues of growth as we innovate products and services essential for a rapidly growing and more sustainable world. The decarbonization of our industry is not only possible but accretive, and our experience over the last two years supports that view.

We continue to make progress in optimizing and rebalancing our portfolio for growth. Since 2020, we have invested more than $1 billion in strategic bolt-on or margin-enhancement projects focused on our four core businesses and in the markets we currently operate. These investments are typically in the $20 to $30 million area, and we have completed more than 200 investments to date. This strategy accelerates our business growth as these projects typically pay off rapidly within three to four years. In 2022 alone, our growth strategy delivered $100 million in incremental EBITDA from completed projects. The investments allow us to achieve cost savings from operating efficiencies, advance our CO2 reduction goal, invest in adjacent businesses, increase production capacity in supply-constrained markets, and drive growth in our urbanization solutions business, our fastest-growing business segment. EBITDA from this core business has grown at a compounded rate of 21 percent from 2019 to 2022. We continue reorienting the portfolio toward developed markets, particularly the U.S. and Europe, through these investments and strategic divestments.

Due to the essential nature of our products in society, we recognize that our business has a critical role to play in creating a more sustainable future for all, and we are committed to driving a positive impact for our stakeholders. To this end, we have set ambitious goals to become a net-zero CO2 company by 2050 and strive to make sustainability a part of our everyday decision-making processes. Importantly, our roadmap to reach our 2030 decarbonization goal is achievable and promotes a circular economy where non-recyclable waste streams are used in recycling minerals and recovering energy, efficiently substituting virgin raw materials necessary for construction while avoiding methane emissions from landfills. Not only is this process suitable for society, but this roadmap is also profitable, as the levers we use substitute for more expensive raw materials or fossil fuels.

I prefer to lead through collaboration. I have a strong management team, and while ultimate decisions lie with me, I like to empower my senior managers to share their perspectives freely. I also frequently visit our operations worldwide and enjoy hearing from employees and seeing firsthand what we are doing locally. We have a strong culture and value system at Cemex, which also provides alignment. We encourage sharing best practices across our regions; a digital focus is part of our culture. Finally, nothing is more important than our employees' health and safety. We will not compromise on that, which is critical to running the company.

We have an energized commitment because we are entering a new era, ready to take on new challenges to make a difference, driven by innovation, sustainability, passion, and agility. Our industry is fundamentally reshaping, driven by climate and digital innovations. I am excited by the opportunities this affords the construction materials world. Finally, inspiring a new generation as we push boundaries toward a more digital and sustainable industry with a clear goal of building a better future together . . . excites me!

In 2023, our challenges have emerged because of positive developments, specifically, the significant surge in demand within our sector. The strengthening of manufacturing ecosystems and favorable market trends have led to increased occupancy in industrial real estate. Therefore, we are focused on the opportunities to grow in the most strategic markets in Mexico, to respond to this growing demand of world-class industrial spaces. International trade and supply chains have been highlighted as heavily reliant on specific regions, making companies contemplate expanding or relocating production facilities to other areas to secure their supply chains for the long term. We believe that nearshoring could have a transformative impact on Mexico's economy. These gains would be seen in established sectors, those linked to [U.S.-Mexico-Canada Agreement] trends, and those related to emerging areas like IT hardware and new clusters such as batteries, electric vehicles, and parts. This would lead to a notable “second wave” of nearshoring — all over the course of five years, that will certainly mean more demand for industrial real estate. However, the next wave of nearshoring into Mexico is not guaranteed, as the country is unprepared for the influx of investments, particularly due to underinvestment in the electricity sector. In response to these challenges, our business has identified the need for growth, particularly in the northern region where our buildings are already at full occupancy, and also within key metropolitan areas. To address the obstacles to nearshoring, we are exploring ways to invest in and improve infrastructure, collaborate with government bodies, and engage with potential corporate partners to promote nearshoring opportunities in Mexico.

Vesta follows a vision according to an aggressive growth plan through its level 3 strategy, which sets a goal of growing to more than 50 million square feet of gross leasable area by 2027, investing $1.1 billion. We have a solid pipeline of well-defined projects in Mexico’s high growth metropolitan markets, focusing on our five re-defined growth regions: Tijuana, Ciudad Juarez, Monterrey, Queretaro, Guadalajara, Estado de México, and the Mexico City Metropolitan Area, as well as others. Vesta made its successful NYSE debut on July 5, 2023, a significant milestone for our company. Vesta’s outstanding team raised the most funds by a Mexican company in nearly 11 years, bringing the total to $446 million with the over-allotment, and our shares began trading on the NYSE at market open on June 30 under the VTMX ticker. We plan to use the offering proceeds to fund Vesta’s growth pipeline.

At Vesta, we are aware that if we do not invest in people, environment, and work transparently accordingly with our stakeholders’ interests we will not be able to become profitable, sustainable, neither resilient over time. Our ESG commitment involves a long-term vision to build a legacy for future generations, involving all stakeholders, incorporating resilient measures, and placing ESG at the center of our strategy and core business. Therefore, ESG subjects have evolved in the company through time, making them part of the day-to-day business operation. These actions cannot be implemented just by one department, they require the daily collaboration of all areas of the company. That is why ESG matters are found transversally throughout the organization — from the board of directors to the smallest department of the company. At Vesta, we started the story 11 years ago. We have built a solid ESG program which we are continuously improving according to national and international standards and best practices of the sector. Since then, we have been implementing different actions that had led us to what we are now, that differentiate ourselves from our peers and even more important, they led us to become leaders in some of these initiatives.

We are a high-performance team led by a strong and clear vision, and a well-defined business strategy. We work as a team, and we like to compare ourselves to a cycling peloton, where we all cooperate to reach the team’s goals. A peloton is a formation of teamwork, concerted effort, collaboration, communication, and dedication required to triumph. In a peloton, each member has a specific role and responsibilities that contribute to success. Unique strengths and abilities contribute to collective performance. And we achieve our goals through hard work and a team mindset.

Mexico has all the opportunities to grow. As we celebrated Vesta’s listing on the NYSE, we were also humbled by the incredible opportunities that lie ahead for our company, our industry, and the broader Mexican economy. Our listing on the NYSE not only broadens our access to capital but also serves as a powerful statement to the investment community, underscoring Mexico's potential as an attractive and lucrative market in which to invest.

We are proud to showcase the exciting growth opportunities within our country and are committed to fostering an environment that nurtures innovation, drives sustainable practices, and fosters economic prosperity.